US oil exports to Europe at an all-time high

The Organization of the Petroleum Exporting Countries (OPEC) and Russia joined forces last year to rebalance the oil market by cutting overall production by 1.8 million barrels per day (bpd). The prices of oil, specifically benchmark Brent prices LCOo1, has increased due to the pact, allowing American producers to take full advantage and flood Europe with a record amount of fuel.

“U.S. oil is on offer everywhere,” said a trader with a Mediterranean refiner, who regularly buys Russian and Caspian Sea crude and has recently started purchasing U.S. oil. “It puts local grades under a lot of pressure.”

Europe took roughly 7 percent of U.S. crude exports last year and this year’s proportion has nearly doubled with the amount at about 12 percent. U.S. oil has gained popularity because of the wide gap between West Texas Intermediate (WTI), the U.S. benchmark, and dated Brent, which is more expensive and sets the price for most of the world’s crude grades.

This gap between Brent and WTI has averaged $4.46 per barrel this year, nearly twice as high as last year. Prices for popular alternative U.S. grades like WTI, Light Louisiana Sweet, Eagle Ford, Bakken and Mars have dropped as a result.

A surge in U.S. output is also playing a significant role in the increased supply of domestic oil production at rates not seen since the late 60s and early 70s due to new technology. U.S. output is expected to reach 10.7 million bpd this year, rivaling that of top producers Russia and Saudi Arabia. This nearly record-breaking output, in addition to the U.S. lifting its oil export ban in late 2015, is now starting to reap the benefits as the move took time to gain traction among Europe’s traditional refineries.

Britain, Italy, the Netherlands and France seem to be the most popular destinations for U.S. oil. Companies like British Petroleum, ExxonMobil and Valero are already on the bandwagon and smaller refiners like PKN Orlen, Grupa Lotos and Statoil are sampling U.S. grades.

“European refiners started experimenting with U.S. crude last year,” said Ehsan Ul-Haq, director of London-based consultancy Resource Economics. “Now, they know more than enough to process this crude.”

References:

S. Energy Information Administration. (2018, March 30) U.S. Field Production of Crude Oil. Retrieved from www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M.